Essay: Liabilities And Remedies In CIF Contract For Shipment Of Golden Delicious Apples.

Oriental Fruit Ltd based in Shanghai (China) entered into a contract to sell 5,000 tons of Golden Delicious Apples, CIF Portsmouth, to Global Fruit Ltd (UK). The contract was expressly stated to be governed by English law.  The contract required the apples to be packed in 100kg boxes and shipped in March 2018.

The apples were actually sent for loading at the port of shipment partly in 100kg boxes and partly in 50kg boxes. Inside one of the 100kg boxes were Royal Gala Apples instead of Golden Delicious Apples. Another two boxes of apples were mouldy.

A ‘received for shipment’ bill of lading dated 31^st March 2018 from Shanghai to Southampton was tendered to Global Fruit Ltd. The bill contained a clause which stated that “Goods are not shipped in apparent good order or condition”. A certificate of insurance was also tended which covered the voyage from Shanghai to Southampton.

The apples safely arrived at the port of Portsmouth on 15^th April. Global Fruit Ltd rejected the documents and refused to make payment. Oriental Fruit Ltd argued that the goods arrived safely and the Global Fruit Ltd should be liable for payment.

Advise both parties of their potential liabilities and remedies. Your answer must make reference to statutes and case law. 

Background and Facts of the Contract

Oriental Fruit Limited and Global Fruit limited entered into a contract for the purchase through carriage by sea of a particular quantity of Golden Delicious Apples. A CIF (cost, insurance, freight) contract was executed which covered the voyage till the berthing at Portsmouth Port. These were to be shipped in 100kg boxes. The goods were packaged partly in 100kg boxes and partly in 50kg boxes. The 100kg boxes of the shipment contained apples of a different specification (Royal Gala Apples). Two of the shipped boxes contained mouldy apples. The contract was to be governed by English Law.

The bill of lading tendered in this case was a “received for shipment” bill of lading and it additionally had a clause stating that the quality of the goods that are shipped are not in good order or condition. When the goods finally arrived at the port the buyer refused to take delivery and pay for the goods.

The issue here is if the buyer is liable to accept delivery by virtue of the fact that the good arrived at the port and if not the liabilities of both the parties in the scenario and the remedies available to them.

A contract of cost, insurance and freight has been judicially interpreted in Johnson v. Taylor Bros & Co Ltd to imply the following obligations on part of the seller (vendor) (in the absence of any terms to the contrary):

• To make an invoice of the goods that are being sold.
• To deliver goods that match the description agreed upon in the terms of the contract.
• To enter into freight contracts to ensure delivery of the goods to the port agreed upon in the contract.
• To provide for a contract of insurance to ensure the rights of the buyer is protected.
• To deliver these documents to the buyer.

As per Manbre Saccharine Co, Ltd v Corn Products Co Ltd it is the obligation of the seller to ensure that the shipped good adhere to the description of the goods agreed upon in the terms of the contract. The packaging of the goods would also form a part of the description of goods agreed upon.

Section 13 of the Sale of Goods Act, 1979 imposes an implied term of sale contracts that the goods sold should correspond to the any description agreed upon between the parties. Section 28 of the Act lays down that delivery of the goods and the obligation to pay for them are concurrent conditions. This means that either must be observed as a condition to necessitate the reciprocal.

Article III of the Hague Visby Rules dictate that the shipper may demand that the order of condition of the goods is incorporated into the Bill of lading to ensure that goods of the description agreed upon correspond to the shipped goods.

Article 32 of the Uniform Customs & Practice 500 lays down that “apparent good order and condition” relates to the placement of the goods in the ship in good order and does not relate to the fitness of the goods in light of the purpose they are shipped for. Thus has also been reiterated in Silver v Ocean Steamship Co Ltd. 

Obligations of Seller under CIF Contract

Landauer & Co v Craven & Speeding Bros laid down that the seller must ensure that the bill of lading is transferable and that it is genuine. Additionally, it was laid down in Diamond Alkali Export Corporation v FL. Bourgeois that a “received for shipment” Bill of lading would not be sufficient and a seller must obtain a “shipped” Bill of lading.

As laid down in Hadley v Baxendale lays down the circumstances in which damages are awarded for a loss arising out of a contract.  Rule 1 here lays down that damages will be awarded if the loss is the loss arose naturally from the breach of the terms of contract in the usual course of things.

Section 39 of the Sale of Goods Act, 1979 defines three remedies available to the seller in case of a breach of contract. Section 48 talks about “resale” which relates to the resale of the goods by the seller and is one of the remedies defined under Section 39. Here, after giving due notice and opportunity to the buyer the goods maybe sold by the seller to recover the price.

In the given set of circumstances the buyer “Global Fruit limited” contracted with “Oriental Fruit Limited” for shipment of apples of a certain specification which were instructed to be packaged according to certain specifications. Following Johnson v. Taylor Bros & Co Ltd we see that the second obligation has not been met by the seller as the seller has not delivered the goods as described in the contract. Manbre Saccharine Co, Ltd v Corn Products Co Ltd laid down that the packaging of the goods is also a part of the description of the shipped goods. The seller agreed to ship the goods in 100kg boxes but the original shipment has 100kg boxes and 50kg boxes. Additionally, the quality of good required was Golden Delicious apples and a part of the shipment contained Royal Gala Apples instead. This is also in contravention of section13 of the Sale of Goods Act, 1979.

The sellers claim for payment is also invalid by virtue of the fact that he did not obtain a shipped bill of lading and had obtained a received for shipment bill of lading. This would be deemed inadequate following the decision in Diamond Alkali Export Corporation v FL. Bourgeois.

The buyer would ideally have the right to reject delivery and payment of the goods in light of his rights under Section 28 of the Sale of Goods Act, 1979.

Johnson v. Taylor Bros & Co Ltd also laid down that the seller is obligated to insure the interests of the buyer and by virtue of this Global Fruits Limited would be indemnified against any loss arising out of the contract in relation to the shipment of the goods. Thus, Global Fruits would not be liable to pay for the goods shipped by Oriental Fruits Limited.

Conclusion

To conclude, the liability of the buyer here would not be to accept the goods as there is a clear breach committed by the seller. The seller on the other hand may seek to enforce an action for breach on the ground of non-payment but since they had not shipped the goods as specified by the buyer it would follow that there was no breach from the buyer’s side.

There are remedies available to both parties as set out in the above discussions. Following Rule 1 in Hadley v Baxendale the buyer would have the option of legally pursuing the seller for the loss incurred by him due to the breach of contract on the seller’s part. The seller on the other hand, would have only one of remedies stated in Section 39 of the Sale of Goods Act, 1979 available to him as the other’s don’t apply  to the present situation. The only applicable remedy is the resale as defined under section 48 of the Sale of Goods Act, 1979. Thus, by giving due notice to Global Fruits Limited, and after waiting for a reasonable period of time for them to make payment, Oriental Fruits Limited would have the option to sell the goods to a buyer who they deem fit. 

Sale of Goods Act, 1979

Uniform Customs & Practices 500

Hudson, John. The formation of English common law: law and society in England from the Norman Conquest to Magna Carta. Routledge, 2014

Bridge, Michael G. The international sale of goods. Oxford University Press, 2017

Johnson v. Taylor Bros & Co Ltd [1920] AC 144

Manbre Saccharine Co, Ltd v Corn Products Co Ltd [1918-19] All ER Rep 980

Silver v Ocean Steamship Co Ltd [1930] 1 KB 416

Landauer & Co v Craven & Speeding Bros [1912] 2 KB 60

Diamond Alkali Export Corporation v FL. Bourgeois [1921] 3 K.B. 443

Hadley v Baxendale [1854] 23 LJ Ex 17